It's not just the federal government that is wasting money by failing to do cost-benefit analysis when hiring contractors; experts say poor contracting oversight on the state level is also hurting taxpayers.
On Tuesday, the Project on Government Oversight (POGO) released the first report of its kind showing that, contrary to popular belief, using contractors to perform services actually increases costs. The report looked at 35 federal job classifications and found that the government is failing to perform adequate cost comparisons.
Scott Amey, POGO's general counsel who worked on the report, said that while conducting research they found little cost comparison information related to federal service contracts--but there was a great amount of data related to state and local outsourcing and privatization efforts. Despite this available information, the reports haven't produced the savings promised.
To this extent, state governments faced with budget pressure are making mistakes similar to the federal government, privatizing and contracting for services on a large scale without determining whether the decisions make fiscal sense. One organization that has delved into these contracting problems on the state level is the Service Employees International Union (SEIU).
Eric Lotke, a senior research analyst at SEIU said, "Too many people [on the state level] assume that the private sector will be cheaper and better. Often it's not the case."
SEIU undertook a study in Oregon this year that showed the state spends millions of dollars more on contracts for nursing services than if it had hired in-house. According to the study, state nurses cost about 20 percent less than contracted nurses.
In Michigan, SEIU focused on the Department of Transportation and found technicians working under contract, side by side with state employees doing the same work. Contract employees were paid between $87 and $123 per hour-state employees were only costing $54 per hour with full benefits.
Fortunately, many of the recommendations in POGO's report can be generalized to the state level, said Shahrzad Habibi, resource center director at In the Public Interest. These include ensuring that new and existing state government contracts truly make financial sense and evaluating whether these functions can be performed more cost-effectively by government employees.
State governments should also be wary of signing long-term contracts said Habibi, as governments need flexibility to quickly take action when protecting the public interest.
